Fortune Brands Unit Eyed by Private Equity: Reports

Fortune Brands' home products unit may be a private equity target, according to reports.

DEERFIELD, Ill. ( TheStreet) -- Private equity firms such as Blackstone Group ( BX) and Bain Capital may be making a play for Fortune Brands' ( FO) home products unit, according to reports.

Fortune Brands confirmed in early December that it will break itself into three separate companies , hoping to spin off its home and security division to shareholders in a tax-free transaction, sell or spin off its golf products business and continue as a public liquor company.

A tax-free spinoff of Fortune Brands' home products unit, Fortune Brands Home & Security, to shareholders would offer preferable long-term value than other divesting alternatives, said Fortune spokesman Clarkson Hine.

Selling to buyout firms would lead Fortune Brands to incur heavy taxes. Bidders would have to assume a recovery in the economy and housing market and use that assumption for valuation of the home products unit, according to sources who spoke anonymously to Reuters.

The housing market has not yet fully recovered from the recent economic downturn. New-home sales rose 5.5% in November but remained 21.2% below year-earlier levels, meaning demand for many of the household products Fortune Brands Home & Security sells, such as windows, cabinets and faucets, also remains sluggish.

Fortune Brands Home & Security earned $350 million in 2010, before interest, taxes, depreciation and amortization, but the line item is expected to grow above $400 million this year, sources told the newswire.

"The board would tell you 'Don't look at 2010.' That's why the math gets tough because the sponsors have to put a much bigger price on it and that affects their returns on the equation," one of the sources said.

"The company is pretty well positioned to capture the recovery in the economy and the board of directors at Fortune would want full value for the asset."